I think maybe buying a condo in cash is a good way store my down payment on a house into a physical asset and may not be a bad idea if I lived in it for about 2-3 years and then resold. I could then live in the condo and just pay cash, the only expense would be the HOA fee, which could be put down to a mortgage. I could use the time while living in a condo to save up money to make a larger down payment on a house, meaning a smaller loan, and less interest on a loan.

So if I took out a 130,000 loan for a house at a 10 year fixed I would pay about 20k in interest. 20k/10 = 2k per year, or about 167 dollars a month, since condo HOA fees are about 400 to 500 a month, I would be paying more than double on the HOA fee. Meaning the only way buying a condo in cash is better than buying a home is if I had a reliable roommate every month and charged them more than the HOA fee. That assuming that I would be able to find one.

Am I missing something? It seems that even if I bought a condo in cash, it makes more sense to buy a house and take out a mortgage in the long run.

Tue Jul 11, 2017 1:01 am

oldguySenior Member

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quote: I could use the time while living in a condo to save up money to make a larger down payment on a house, meaning a smaller loan, and less interest on a loan.

Wrong goal - "less interest" isn't a goal, the real goal is to optimize your net worth. Eg, if you save up $130k and spend it on a condo, that money is SPENT, you can't use it for wealth-building. Instead put your $130k to work where it earns a solid return.

quote: a physical asset and may not be a bad idea if I lived in it for about 2-3 years and then resold.

Markets cannot be timed - that applies to both the stock market and the real estate market.

Think about the difference between building wealth serially - and in parallel.
1. If I had tried to buy 4 rental houses in series, ie save up the money and pay cash for each house, it would have taken at least 10 years for each house (40 years) plus my family of 4 would have needed to live in poverty while I directed my income stream to buying houses for 40 years.
2. Instead I made a small down payment, waited 3 or 4 years, refi'd house #1 and used that money to make DPs on houses 2 & 3, And then refi'd again and used the cash-out to buy house #4, as well as stock. I had all 4 houses bought and rented out within 5 years, the rents were paying the mortgages. And all future cash-outs went into stocks (which grew into millions over the next 30 years). And my income stream was available for my wife & children.

Tue Jul 11, 2017 3:00 am

YoshiMoshiNew Member

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Hey, I understand what your saying. I however have no interest at all in becoming a landlord though and not really concerned about net worth and so forth at the moment. Maybe I could be missing out on lots of money, and that's fine.

But what I'm asking is so say I have 60k cash. There's a 169,900 home that I wish to buy. I put the 60k as a down payment and take out a 109,900 loan. I take a 10 year fixed loan at 2.97 % interest. I believe I would have flushed 17,262 of interest down the toilet.

Option 2. I take that 60k and purchase a condo in cash. The condo has say $300 a month HOA fee, I know can go up an down blah blah blah (I think the ones in the area I'm looking at are about $250, so I'll just call it $300). I live in it for three years that
300*12*3 = 10,800 flushed down the toilet

The HOA covers heat, hot water, trash and water (I'm not so sure how much to value these at that I would be paying by myself if I owned a home)

Ok so during that three years I save up another 60k (very reasonable for me). I then sell the condo. Yes I know condo can go up condo can down in value blah blah blah unknown... So let's just say I get my money back and get 60k, sell it for what I bought it for. I now have 120k

I buy that same 169,900 home with a 120,000 down payment or 49,900 loan at 10 years 2.97 %. However I can pay about 1200 a month and exceed the monthly payments meaing I pay a total of 52,724.00 for my 49,900 loan or 2824 dollars flushed down the toilet

total flushed down the toilet when buying a condo in cash and then saving up money for larger down payment 10800 + 2824 = 13624

I know this is like less than 5k difference and not even enough for a good used car. But I'm very stingy. So my question is does it save me more money and make since to
1) But the 60k down payment on a 169,900 home, and take out a ten year fixed mortgage (I think I wouldn't be able to pay much more than 1200 a month)

2) Buy a condo and pay the HOA fee until I can double my down payment (3 years) than put 120k down on the 169,900 home, still pay the same monthly payments to pay of the loan quicker in less than 5 years

I know this may not be the best use of my money but I have no interest in becoming a landlord or anything at the moment.

Thanks for your help!

Wed Jul 12, 2017 11:19 pm

oldguySenior Member

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quote: I know this may not be the best use of my money but I have no interest in becoming a landlord or anything at the moment.

I told you my landlord experience as an example of how to use real estate loans to build wealth. I'm not recommending that you become a landlord.
But you are conflicting - you say that you are not interested in saving/making money - yet you are trying to save money by not paying interest?

If I had $60k in cash and was buying a $170k house, I would make a minimal down payment, maybe $17k. And get a $153k loan, fixed rate, 4%, 30 years. The PI will be $730/m ($263k total, $110k of that is interest).
Place your $43,000 cash in an 11%/yr SP500 Index fund, that will grow to $990,000 in 30 yr. And since your loan is $730/m (rather than the $1200/m that you could pay for a 10-yr loan), have the extra #470/ m auto-deposited monthly into that same SP500 fund. That adds $1,246,000 to your $990,000.

This doesn't mean that you'll stay in the same condo for 30 yrs - but each time you sell/buy you can replicate your financial status into the new house. In any case, most of the $2.2M will be there for you. N My point is that by directing your $60k and your $1200/m to it's "highest and best" use, you'll get an extra $2M for the same output.
And instead of worrying about 'flushing $20k or $30k down the toilet' to pay for the longterm use of money, focus on the $2.2M goal.